The Registrar of Companies (West Bengal) issued an adjudication order dated 3rd July 2023 concerning Gillanders Arbuthnot & Co Ltd for non-compliance with Section 143 of the Companies Act, 2013, which corresponds to Section 227 of the Companies Act, 1956. This matter pertains to financial reporting violations identified during the inspection of the company’s financial statements for the fiscal years 2006-2007, 2007-2008, and 2008-2009. The statutory auditor, M/S Price Waterhouse, failed to properly classify and disclose earnings in foreign exchange, income from investments, and other key financial details, as mandated by the Companies Act. This lack of compliance resulted in multiple violations, including the improper classification of fixed assets, unsecured loans, and preference share capital.
Following a series of show-cause notices and legal proceedings, the Kolkata Metropolitan Magistrate Court allowed the compounding of these offenses in December 2022. However, since the offense under Section 227 of the Companies Act, 1956 was decriminalized and aligned with Section 143 of the Companies Act, 2013, the statutory auditor now faces penalties under Section 450 and 454 of the Companies Act, 2013. The adjudicating officer has ordered Gillanders Arbuthnot & Co Ltd to comply with these penalty provisions, failing which further legal action will follow. The violations highlight critical lapses in financial transparency and audit standards during the reporting periods under review.
GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies (West Bengal).
Nizam Palace, 2nd M. S. O. Building, 2nd Floor
Acharya Jagadish Chandra Bose Road
KOLKATA — 700 020
Order No. ROC/ADJ/2023/008194/3188 Date: 03/07/2023
SUBJECT: SERVICE OF ORDER OF ADJUDICATION PROCEEDINGS FOR VIOLATION OF SECTION 143 OF THE COMPANIES ACT, 2013 [ERSTWHILE CORRESPONDING SECTION 227(2tR/W 211(1) (2) OF THE COMPANIES ACT, 1956] IN THE MATTER OF GILLANDERS ARBUTHNOT as CO LTD
Sir,
Please find herewith a copy of the Order passed by Adjudicating Officer dated 03.07.2023 for necessary compliance within the prescribed time failing which penal action will follow without further intimation.
[A. K. Sethi, ICLS]
Adjudicating Officer & Registrar of Companies,
West Bengal
GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies (West Bengal).
Nizam Palace, 2nd M. S. O. Building, 2nd Floor
Acharya Jagadish Chandra Bose Road
KOLKATA — 700 020
No. ROC/LEGAL/ADJ/2023/008194/penalty order/
Dated: 03-07-2023
ADJUDICATION ORDER FOR PENALTY U/S 454(3) OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 AS AMENDED BY THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2019 IN MATTER OF NON COMPLIANCE OF THE PROVISIONS OF SECTION 143 OF THE COMPANIES ACT, 2013 [ERSTWHILE CORRESPONDING SECTION 227(2) R/W 211(1) & (2) OF THE COMPANIES ACT, 1956]
In respect of: GILLANDERS ARBUTHNOT & CO LTD
(CIN: L51909WB B1935PLC008194)
Applicant: P. LAW (Erstwhile Partner), M/S. PRICE WATERHOUSE
1. Appointment of Adjudicating Officer:-
Ministry of Corporate Affairs vide its Gazette Notification No A-42011/112/2014-Ad.II dated 24.03.2015 appointed undersigned as conferred by section 454(1) read with section454(3) of the Companies Act, 2013 [herein after known as Act] read with Companies (Adjudication of Penalties) Rules, 2014 for of this Act. The undersigned is entrusted to adjudicating penalties under the provisions adjudicate penalties under section 450 of the Adjudicating Officer in exercise of the Companies Act, 2013.
2. Company:-
GILLANDERS ARBUTHNOT & CO LTD [herein after known as the company] is a registered company incorporated on 01.02.1935 under the provisions of the Companies Act,2013 having its registered office as per MCA21 Registry at address C- 4, GILLANDER HOUSE NETAJI SUBHAS ROAD, KOLKATA WB 700001 INDIA.
3. Facts about the Case:-
1. The books of the accounts and other records of the Company were inspected by the Office of the Regional Director, Eastern Region, Kolkata and post inspection an inspection report vide letter no. JD(Inspn)Cal/08/09/4719 dated 19.11.2009 was issued by the said Office to the Applicant seeking clarifications on certain contraventions related to the financial statements of the Company for the financial years 2006-2007, 2007-2008 and 2008-2009 as the applicant was the statutory auditors of the said Company during those financial years. Further, Show Cause Notice has been issued by the Registrar of Companies, West Bengal vide letter no. ROC/8194/Inspn/209A/227(2)/2076 dated 11.11.2010. The said letter, inter alia, contained the following violations related to provisions of Section 227(2). read with Section 211 (1) & (2) read with Part I/ II of the Schedule VI of the Companies Act, 1956:
i. As per the Schedule to the Profit & Loss Accounts for the periods ending on 31.03.2007, 31.03.2008 and 31.03.2009, the earnings in foreign exchange include income from other services. However, the nature of such income as provided in Cl. 4D(e)(iv) of Part II of Schedule VI to the Act are not disclosed as other services cannot be said as the nature of income. In the absence of such classification and disclosure, there is contravention of Section 211 r/w Part II of Schedule VI to the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the Act.
ii. As per the Profit & Loss Accounts for the periods ending on 31.03.2007, 31.03.2008 and 31.03.2009, the other income includes income by way of dividend from investment. However, the income from investment is not classified into income from trade investment or other investment as provided in Para 3(xi) of Part II of Schedule VI to the Act. In the absence of such classification and disclosure, there is contravention of Section 211 r/w Part II of Schedule VI to the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the
iii. As per the Profit & Loss Accounts for the periods ending on 31.03.2007, 31.03.2008 and 31.03.2009, the other income includes profit on sale of investment. However, the income from investment is not classified into income from trade investment or other investment as provided in Para 3(xi) of Part II of Schedule VI to the Act. In the absence of such classification and disclosure, there is contravention of Section 211 r/w Part II of Schedule VI to the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the Act.
iv. The Sundry Creditors under the head Current Liabilities shown in the Balance Sheet as at 31.03.2008 and 31.03.2009 are not bifurcated into amount due to micro enterprises and small enterprises and amount due to others as provided under Part I of Schedule VI to the Act, resulting in contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the Act.
v. As per the Balance Sheet as at 31.03.2009, the secured loans includes loan amounting to Rs.3.81 lacs taken from M/S. Kotak Mahindra Primus Ltd. but the details of security created in favour of the said Bank as provided under Part I of Schedule VI to the Act is not disclosed in the Balance Sheet for the aforesaid year resulting in contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the Act.
vi. In the Schedule of Fixed Assets attached to the Balance Sheets as at 31.03.2007, 31.03.2008 and 31.03.2009 and Profit & Loss for the periods ending on the said dates, the cost of the freehold and leasehold have been clubbed in gross and net block are disclosed in a consolidated manner, which is contrary to the provisions of Part I of Schedule VI to the Act. In terms of the provisions of instructions in accordance with which the assets and liabilities should be made out given in Part I of Schedule VI, the cost of the freehold land, cost of the leasehold land and cost of the building should have shown separately, which has not been made in the present case resulting in contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the Act.
vii. As per the Balance Sheet as at 31.03.2009, the issued, subscribed and paid up share capital includes 2,00,000 8% Redeemable Cumulative preference shares, but the terms of redemption (if any) together with earliest date of redemption of the Preference Shares as provided under Part I of Schedule VI to the Act is not disclosed in the Balance Sheet for the aforesaid year resulting in contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act and the Auditors in their report should have qualified for the same, which in the present case has not been done resulting in violation of Section 227(2) of the Act.
AND WHEREAS, the Auditor of the Company has violated the provisions of Section 227 of the Companies Act, 1956. Accordingly, Complaints were filed before the Hon’ble Ld. Chief Metropolitan Magistrate at Calcutta for the aforesaid violations on 01.12.2010 vide case no. C/35186/2010, C/35185/2010, C/35184/2010, C/35183/2010, C/35182/2010, C/35187/2010 and C/35181/2010. The Hon’ble Court pronounced an order on 20.12.2022 and wherein it was stated that:
“That the petition filed by the accused for compounding the offense is allowed without contest. Accordingly, the accused can proceed for compounding the offense in accordance with the law before the ROC. ROC is requested to take necessary steps for compounding the offense in accordance with the law if applied by the accused through proper way.”
AND WHEREAS, compounding applications were filed in GNL-1 vide SRN: F60136199, F60134616, F60131810, F60134285, F60128436, F60128527, F60128253 respectively for the violations quoted above as the Auditor contravened the provisions of Section 227 of the Companies Act, 1956 for which he was liable to penal action under Section 233 of the said Act. However the said violation of Section 227 of the Companies Act. 1956, corresponding to Section 143 of the Companies Act, 2013 has been decriminalized and hence the Auditor shall be liable to penalty under Section 450 for violation of Section 143 of the Companies Act, 2013. Therefore, the matter is referred for adjudication of penalty under Section 450 read with Section 454 of the Companies Act, 2013.
2. The provisions of Section 143(3) of the Companies Act, 2013 requires that the auditor’s report shall also state—
(a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
(b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
(c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
(d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
(e) whether, in his opinion, the financial statements comply with the: accounting standards;
(f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
(i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;
Section 450 of the Act provides inter alia that: if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case, of an officer who is in default or any other person. Thus, the Auditor has violated Section 143 of the Companies Act, 2013. Accordingly, Penalty under Section 450 will be applicable on the Auditor.
4. Accordingly, the adjudication officer has issued hearing notice vide No. LEGAL/ADJ/2023/008194 dated 16.06.2023 to the auditors in default for the violation of the provisions of the Act as mentioned in para “1 & 2” above giving an opportunity to appear before the undersigned on the hearing date scheduled on 20.06.2023.
5. Further, Shri A. K. Labh, Practicing Company Secretary, Kolkata being the Authorized Representative appeared before the undersigned on the date of hearing and submitted that:
Pursuant to the direction of the Ld. 10th Metropolitan Magistrate vide order dated 20/12/2022, wherein Petitioner Company has been directed for filing compounding application for compounding of offence before the Registrar of Companies. Accordingly, necessary GNL- 1 forms for the respective offences were filed making application for various offences committed for violation of Section 227(2) read with Schedule VI of the Companies Act, 1956 against the respective complaints by the Auditor for the concerned period. However, the said offences under the Companies Act, 1956, corresponding section 143 of the Companies Act, 2013 has been decriminalized where defaults are subject to penalty under Section 450 of the Companies Act, 2013
In order to comply with the direction of the Ld. 10th Metropolitan Magistrate, the Authorized Representative appealed for adjudication of penalty under Section 454 of the Companies Act, 2013 for the aforesaid violations committed under corresponding Section 143 of the Companies Act, 2013, so as to dispose of the case pending before the Ld. 10th Metropolitan Magistrate.
AND WHEREAS, the Authorized Representative submitted that Section 143 of the enactment shall have prospective effect from the date of notification relying upon the judgment of the apex court [SLP 459/2004] and not the retrospective effect.
The Authorized Representative further submitted that the offences are technical in nature and inadvertently missed out for reporting in its report. The auditor of the company has also tendered his resignation from F.Y 2010- 11 and is no more associated with the said Company on any capacity as on date. It is also submitted that offences were purely unintentional and non mala fide in nature and not caused any damage to public or revenue loss to the exchequer and nobody’s interest was hampered in any manner.
6. Furthermore, in light of the above, the Authorized Representative requested the undersigned to take leniency in the matter for imposition of penalty for relevant period of default i.e. 2006-07, 2007-08 & 2008-09 as applicable.
ORDER
1. The Auditor(s) who have defaulted the provisions of Section 227 of the Companies Act, 1956, corresponding to Section 143 of the Companies Act, 2013 are liable for penalties under section 450 of the Companies Act, 2013 pursuant to the instruction of the Directorate vide letter dated 11.05.2022, wherein it has been instructed that those violations which arose under the Sections of the Companies Act, 1956 and the Companies Act, 2013 and the same has been decriminalized, shall be considered for IAM (In house Adjudication Penalty Mechanism).
2. In exercise of the powers conferred, the undersigned is entrusted to adjudicate penalties under section 450 of the Companies Act, 2013. Therefore, I do hereby impose the penalty of Total Rs. 1,60,000/- (Rupees One Lakh Sixty Thousand only) on the auditor-in-default pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules, 2014. and the proviso of the said Rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 for the violation of section 143 of the Act.
| S. No. | Nature of default deisolation of Section | Penalty imposed on Auditor in default | Period of default (FY) | Penalty for default u/s 450 of the Companies Act, 2013 (Rs.) | Total Penalty (Rs.) | Maximum Penalty imposed (Rs.)
|
| Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to contravention of Section 211 r/w Part II of Schedule VI to the Act. [C. No. C/35186/2010] |
P. Law, Price Waterhouse | 2006-07 to 2008-09 |
10,000 no. of years | 10,000 * 3 =30,000 | 30,000/- | |
| 2 | Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to contravention of Section 211 r/w Part II of Schedule VI to the Act. [C. No. C/35185/2010] |
P. Law, Price Waterhouse | 2006-07 to2008-09 |
10,000 | 10,000 * 3 no. of years =30,000 | 30,000/ |
| 3 | Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to contravention of Section 211 r/w Part II of Schedule VI to the Act. [C. No. C/35184/2010] |
P. Law, Price Waterhouse |
2006-07 to 2008-09 =30,000 | 10,000 no. of years | 10,000 * 3 | 30,000/- |
| 4 | Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act. [C. No. C/35183/2010] |
P. Law, Price Waterhouse |
2007-08 and 2008-09 |
10,000 no. of years | 10,000 * 2 =20,000 | 20,000/- |
| 5 | Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to %.? contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act. [C. No. C/35182/2010] |
P. Law, Price Waterhouse |
2008-09 =10,000 | 10,000 | 10,000 * 1 no. of year | 10,000/- |
| 6 | Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act. [C. No. C/35187/2010] |
P. Law, Price Waterhouse | 2006-07 to 2008-09 |
10,000 | 10,000 * 3 no. of years =30,000 | 30,000/- |
| 7 | Section 227(2) of the Companies Act, 1956 corresponding to Section 143 of the Companies Act, 2013 relating to contraventions of the provisions of Section 211 r/w Part I of Schedule VI of the Act. [C. No. C/35181/2010] | P. Law, Waterhouse | Price 2008-09 | 10,000 | 10,000 * 1 no. of year =10,000 | 10,000/- |
| Total | 1,60,000/- | 1,60,000/- | ||||
3. The noticee shall pay the said amount of penalty (out of own pocket) by way of e-payment [available on Ministry website www.mca.gov.in] under “Pay miscellaneous fees” category in MCA fee and payment Services within 90 days of receipt of this order. The Challan/SRN generated after payment of penalty through online mode shall be forwarded to this Office Address.
4. Appeal against this order may be filed in writing with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata located at Nizam Palace, 2nd M. S. 0. Building, 3rd Floor, 234/4, A.J.C. Bose Road, Kolkata-700020, West Bengal within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the this order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].
5. Your attention is also invited to section 454(8) of the Act regarding consequences of non payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order.
6. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order is being sent to the auditor- in- default mentioned herein above and also to Office of the Regional Director (Eastern Region) and Ministry of Corporate Affairs at New Delhi.
[A. K. Sethi, ICLS]
Adjudicating Officer & Registrar of Companies,
West Bengal
